There has been a lot of discussion in the past few months regarding the Reserve Bank’s decisions impacting property investors who now require 40% equity on any rental investment purchase. This doesn’t just affect new purchases, but also impacts on borrower’s ability to access funds for top-ups in order to maintain or make improvements to their properties.
As one bank lending officer told me when the Reserve bank ruling came into effect last October,
“The majority of my investment clients have already borrowed more than 60% of their property value, so we’re going to have to turn them down if they come back to get money to repair a roof”.
Fortunately, the recent increases in property values have helped many people to access funds which were unavailable a number of months ago. Quotable Value (QV) figures show the increase in the current average house value in the Whakatane District since October 2016 – when changes were introduced to slow down the market - is 7.1% (February 2016- February 2017 the lift was an even more significant 23.9%). However, lenders have signalled that access to funds for home loan borrowing are getting tighter, which is leading to many changes in bank policies which are affecting not just investors.
Recently we have seen a lot less discretion from lenders regarding the discounts available on their interest rates, even for those with a good equity position. We have also seen some banks reducing or on some occasions refusing completely to grant “cash contributions” which were previously available to help cover associated expenses of buying a home and a nice way for the lenders to acknowledge you providing them with your business. Some are still offering cash incentives but may require additional conditions to be met before approving any loan application. Your home loan adviser will be able to help you find the best option.
One other major change regarding loan pricing is related to investment properties. Investment property is property (land or a building or part of a building or both) held to earn rental income, gain capital appreciation or both. In the past month we have seen lenders who have implemented fees for applications (Not previously charged) where only rental property is held as security. There have also been other lenders who have suggested that the interest rates available will be more expensive for rental property than owner occupied, and other banks who have amended their affordability calculators to factor in a higher perceived risk for those people who have or are planning on starting an investment portfolio.
Yet, despite all these changes, the market is still buoyant as a limited number of good quality rental properties is driving rental investment income up, due to tenants demand being stronger than the supply of available properties. Interest rates also remain historically low, with only a small lift in fixed interest rates since the start of the year, and no immediate plans from the Reserve Bank to increase the Official Cash Rate, although the tightening of bank’s credit could still see further climbs in rates later in the year.
